Caribbean Resorts Lure Private Equity as Banks Retreat

Even before last week’s rapprochement between the U.S. and Cuba, private equity companies from Bain Capital Partners LLC to billionaire Sam Zell’s Equity International were boosting investments in Caribbean resorts as the region’s traditional lenders scaled back operations.

While Canadian banks including Bank of Nova Scotia and Royal Bank of Canada shuttered some businesses in the islands, U.S.-based private equity firms have spent $329 million on hotel developments this year, the most in a decade, according to Real Capital Analytics Inc., a New York-based commercial real estate research company.

“Private equity makes for an interesting hero in this situation,” said Robi Das, managing director in the Miami office for Newmark Grubb Knight Frank, a commercial real estate company. “The traditional lenders have been hesitant to participate in the Caribbean. I wouldn’t say they’re out of the market, but the new debt that’s coming in is private equity.”

Struggling with some of the heaviest debt burdens in the world, Caribbean governments are seeking to take advantage of rebounding tourism as the U.S. economy recovers. In May, Zell led the approximately $500 million purchase of Decameron Hotels & Resorts, which operates in countries including Jamaica and Colombia. Now, Cuba provides a new opportunity as U.S. tourists prepare to take advantage of an easing in travel restrictions.

“The Cuba story is huge, no question,” Das said.

While investors wait and see what financial safeguards will be put in place, U.S. hotel chains including Marriott International Inc. (MAR) and Hilton Worldwide Holdings (HLT) Inc. said they are interested in the Cuban market or monitoring developments there.

Source: Bloomberg